Australia RBA forecasts continued firm iron ore exports

Australian iron ore exports are expected to remain strong for the next 12 months because of firm demand from China and extended disruptions in Brazil, the Reserve Bank of Australia (RBA) forecast.

Extended maintenance at some LNG facilities is expected to weigh on LNG exports, while coal exports are expected to be lower because of weaker global demand for coal, Australia's central bank said in its quarterly economic statement. "By contrast, iron ore exports are expected to remain strong."

The benchmark iron ore price has remained elevated since the previous RBA statement in August, briefly reaching its highest level since 2014 in early September. The iron ore price has been supported by continued strength in Chinese steel production, underpinned by public infrastructure and real estate construction.

Port congestion in China has also supported prices, although this has eased more recently. Supplies of iron ore from Brazil have increased following various disruptions earlier in the year, which has dampened the upwards pressure on prices, the RBA said.

Australia's iron ore exports rose in September from a year earlier and were 3.9pc up for January-September.

The RBA maintained its view of firm investment in new iron ore producing capacity and associated infrastructure from its August statement. But it was not as optimistic about the outlook for thermal and coking coal because of the prospect of Chinese import restrictions on Australian coal shipments.

Coking coal prices are not far from their lows for the year. Reports that some Chinese utilities and steel mills have been instructed to stop importing Australian coal have led to increased uncertainty about the demand outlook for seaborne coal, the RBA said. But thermal coal prices have rebounded of late, underpinned by gradually rising global demand and earlier supply cutbacks from producers, it said.

Coking and thermal coal prices have also been supported by analysts' concerns that predicted increased rainfall over Australia, as a result of the La Nina weather pattern, will disrupt supplies in the coming months, the RBA said. Heavy flooding during Australia's last significant La Nina period led to a 20pc fall in Queensland's coal production in the January-March quarter of 2011.

LNG market conditions have improved from earlier in the year from the impact of the Covid-19 pandemic, the RBA said. Higher oil prices will result in an increase in the average price received by Australian LNG exporters for the October-December quarter. The majority of Australia's LNG exports are sold via long-term contracts linked to oil prices at a one to two quarter lag. The Asian LNG spot price has also recovered over the past few months because of extended maintenance at some Australian LNG projects and disruptions to US supplies, while demand has also picked up.

By Kevin Morrison